Declining Purchasing Power, Income Inequality and … AAPL??

Income inequality in the U.S. has been growing steadily since the days of LBJ and the “War on Poverty.” But no matter who is elected to Congress or the Presidency with promises of change, two facts are universal: consumer purchasing power keeps declining and income inequality keeps growing.


The good news is that Apple (ticker symbol AAPL) has grown in price since 2007 quite substantially, while real median household income and hourly wage growth are in the tank. Enjoy those iPhones and iPads!


But the bloom is off the debt rose as a means to achieve “equality.”


Better put on your wetsuit! It’s going to get wet!


Thanks to Arthur Cutten at Jesse’s Cafe Americain for “Bonfire of the Inanities.”

New-Home Sales in U.S. Unexpectedly Slump to Eight-Month Low (Down 13.3% YoY)

This is the strangest economic recovery I have ever seen. On the housing front, new-home sales declined in March by 14.5%.

April 23 (Bloomberg) -By Lorraine Woellert- Sales of new U.S. homes unexpectedly plunged in March to the lowest level in eight months, reflecting a broad-based retreat that signals the industry is facing bigger challenges than just bad weather.

Sales dropped 14.5 percent to a 384,000 annualized pace, lower than any forecast of economists surveyed by Bloomberg and the weakest since July, Commerce Department data showed today in Washington. The median forecast of 74 economists surveyed by Bloomberg News called for the pace to accelerate to 450,000.

The housing recovery has slowed as higher borrowing costs and rising prices make properties less affordable.

New home sales are down 13.3% compared to March of 2013.


And new home sales are back to 1982 levels.


As a result, the stock prices of homebuilders fell (Meritage, Toll Brothers and Ryland are depicted in the following chart).


Being unemployed, The Dude can’t afford a new home. Just the bungalow.

Dude House 2

Worst Mortgage Origination Quarter In 14 Years … And It Just Got WORSE!

It has been a tough Q1 for banks and borrowers. Mortgage originations suffered their worse quarter in 14 years.


And it keeps getting worse.

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 18, 2014.


The seasonally adjusted Purchase Index decreased 2.57% from one week earlier. The non seasonally adjusted Purchase Index decreased 1.53%. The index is down 18.4% from this time last year while the MBA’s 30 year effective mortgage rate is up 22.8%.


Bear in mind that mortgage purchase applications usually peak at the end of April and beginning of May, just like 2013.

On a seasonally adjusted basis, mortgage purchase applications have been in the Zona de Muerta since 2010, along with real median household income, employment to population ratio and M2 Money Velocity


And if we take a closer look since 2007, we can see that The Federal Reserve’s massive balance sheet expansion hasn’t helped mortgage purchase applications …. because it hasn’t helped real income.


The Refinance Index decreased 3.75% from the previous week.


The problem just got real.

Time to bring in the Bad Boys (Martin Lawrence and Will Smith) to get a REAL jobs recovery where real household incomes to start rising again in a serious way.


Bernanke: QE Was For “The Man On The Street” (Wall Street, That Is!) & Their Electrical Parade

Zero Hedge has an amusing story today based on former Federal Reserve Chairman Ben Bernanke’s speech to the Economic Club of Canada (for a cool $250k).

* Bernanke Says US Economy Is Heading Towards Complete Recovery

Huh. The lime colored box shows the rewards of Quantitative Easing to the Man on the Street. In Kingman Kansas, perhaps. Stagnant real household income, employment to population ratio and YoY growth in hourly wage income. And flat-lined mortgage purchase applications.


But for Wall Street, it has been roses, cigars and snifters of cognac.


Of course, retirement funds for workers and investors in the stock market do benefit from The Fed’s quantitative easing. Yet, the jobs market remains stalled while creating low-paying and part-time jobs.

Perhaps Bernanke wants Disney World to rename the Main Street Electrical Parade as the Wall Street Electrical Parade!


Recovery? Californians Aged 50 to 64 Living In Their Parents’ Homes Swelled 67.6% Over 7 Years By 2012

According to the Los Angeles Times, the number of Californians moving in with parents rose by 67.6% over 7 years ending in 2012.

More Californians move in with parents

If that wasn’t bad enough, the Census Bureau said 13.6% of Americans ages 25 to 34 were living with their parents in 2012.


So we have college graduates living at home and Californians aged 50-64 living with their parents. This may partially explain the increase in renting since 2007.


Or the decline in homeownership.


That must be one crowded basement. But remember, Michelle Obama’s mother lives in The White House with her daughter and son-in-law (but that has more room and a nicer basement than most homes).


Mortgage Delinquency Rates Lowest Since October 2007, But There Is STILL NO RECOVERY!!!

According to Black Knight Financial Services’ “First Look” at March 2014 Mortgage Data, mortgage delinquency rates lowest since October 2007.


Yet non-current mortgage rates are still above 10% in Mississippi, New Jersey, Florida, New York and Maine.


Now for the BAD news. The economy remains a wreck despite the improvement in the delinquency numbers. “X” marks the spot.


And despite growth in nonfarm payroll jobs, there is NO RECOVERY!


Recovery? Existing Home Sales Fall 0.2% in March (All Cash Buyers 33%), FHFA Home Prices Rise 0.6% In Feb

U.S. existing home sales fell … again … in March with all cash buyers with a 33% share and investors at 17% share.

April 22 (Bloomberg) — Existing-home sales at 4.59m, exceeding estimate of 4.56m, according to the National Association of Realtors
• Forecast range 4.5m-4.85m from 75 economists surveyed
• Feb. unrevised at 4.6m
Existing-home sales fell 0.2% after falling 0.4% prior month
• 5.2 months supply in March vs. 5.0 in Feb.
• Inventory rose 4.7% to 1.99m homes
• 1st-time buyers 30% of total sales; all cash 33%; investors 17%
• Distressed sales 14% of total sales; of which
foreclosures 10%; short sales 4%
• Median home price rose 7.9% from last year to $198,500

It looks like whatever juice The Fed was applying to existing home sales ran out in July 2013.


Meanwhile, back at the ranch, FHFA released their home price index with the Pacific and Mountain regions rising over 1% in February while New England and the Mid-Atlantic both fell over 1%.

April 22 (Bloomberg) — Home prices rose 6.9% y/y according to a report from the Federal Housing Finance Agency
• Forecast range 0.1% – 0.9% m/m from 17 economists surveyed
• Pacific rose 1.4% vs 0.7% previous month
• Mountain rose 1.2% vs 0.5% previous month

• West North Central unchanged at 0% vs 1% previous month
• West South Central rose 1.1% vs -0.2% previous month
• East North Central rose 0.8% vs -0.3% previous month
• East South Central rose 0.4% vs 0.7% previous month
• New England fell 2.5% vs 1.4% previous month
• Mid-Atlantic fell 1.6% vs 1.7% previous month

• South Atlantic rose 1.7% vs -0.3% previous month

Home prices keep rising as real median household income and employment to population stagnate.

Welcome to El Pueblito!


Forbes: Economically, Could Obama Be America’s Best President? OR WORST?

Forbes Magazine, geared toward the prosperous, had an article in 2013 asking “Economically, Could Obama Be America’s Best President?

For whom?

For investors and government contractors? Absolutely! President Obama could be America’s best President.


But for the middle and lower classes, President Obama could be America’s WORST President.


The GINI ratio of income inequality has risen since 2007 when Democrats took control of both the House and Senate. And real median household income has dropped ever since. But it was after a massive housing and credit bubble burst — Democrats chose to regulate healthcare and the financial sector rather than focusing on jobs.


Forbes is incorrect is simply looking at President Obama since Congress is a major player in the economy (unfortunately). But one thing we do know — the larger government gets, the worse income inequality becomes.


So, it depends on who you are as to whether President Obama is the greatest President, economically speaking.

Barack Obama

S&P Lowers 2014 MBS Issuance Forecast to $15b From $25b (Agency Not Doing So Well Either!)

Another fine mess!

April 21 (Bloomberg) -By Jody Shenn and Christopher DeReza- Portfolio demand for jumbo whole loans has reduced non-agency RMBS issuance this year, S&P said in emailed statement.
• Jumbo loan rates “close to” agency levels, reducing economic benefits of securitization
• S&P downwardly revised U.S. non-agency RMBS issuance forecast to $15b from $25b; prime jumbo projected at $7.5b
• YTD RMBS issuance, including seasoned and NPLs, is $3.4b
• Prime jumbo issuance is $1.6b YTD vs. $13b in 2013

It is true that jumbo rates have trended close to agency levels after the May 1st rise in Treasury and mortgage rates.


But agency issuance is going to be less as well, given the decline in mortgage originations by banks.


There will be less product on the street both in terms of agency and jumbo MBS this year.


The Walking Dead: 7+ Million Mortgage Foreclosures Later … And Lower Real Household Income

It has been quite a ride in the housing market since Q4 2007. Although it is simmering down, there have been more than 7,000,000+ foreclosures in the USA. There are still has 9.1 million seriously underwater homeowners in addition to the more 7 million that have gone through foreclosure.


Household income is in the tank, existing home sales are slowing and mortgage originations are like something out of AMC’s “The Walking Dead.”


While rentership is growing faster than homeownership.


For the same reasons: declining real median household income and labor force participation.


Loan officer Rick checking the income and assets of potential borrowers.


Recovery? Citi, BofA, Wells, JPMorgan Mortgage Declines Exceed 1Q Forecast

According to Bloomberg Analyst Alison Williams, Bank of America (36%), Wells Fargo (28%) and JPMorgan (27%) 1Q mortgage volume declines exceeded the 23% Mortgage Bankers Association’s forecast. Steeper drops at these leading peers likely reflects similar top servicing ranks, which tends to help refinancing volume share. Citigroup (37%) and U.S. Bancorp (27%) showed similar results, with each losing volume share in 4Q. Refinancing volume share is expected to fall to 35% in 2H from 76% in 4Q12.


In total, mortgage originations are back to pre-1997 levels.


Of course, America’s real income are down as well, leaving a thin pool of qualified borrowers.


But at least the wealthiest Americans can get a home loan.


Like Actors Matt Damon, George Clooney and Brad Pitt. All others must rent. (To Rick Sharga: I’m just kidding!)


Although it kind of feels that way.


WSJ: Mortgage Lenders Ease Rules for Home Buyers (Need Qualified Borrowers To Make It Work!)

Nick Timiraos and Annamaria Andriotis of The Wall Street Journal wrote an interesting article entitled “Mortgage Lenders Ease Rules for Home Buyers in Hunt for Business.

“Tiny fractions of borrowers can do things that they could not a year ago,” said Lou Barnes, a mortgage banker in Boulder, Colo. And the most noticeable changes are benefiting the best-off borrowers, he said.

I’m Shocked, shocked it tell you!

As I have discussed numerous times, mortgage production has declined, largely because of the reduced number of qualified borrowers after 2007.

Let’s walk through it together.

Mortgage production has declined dramatically in 2013.


Banks have been allow lower down payments since the peak of credit tightening in 2009.


Yet credit score requirements remain tight after the 2009 tightening. Notice the virtual disappearance of loans with credit scores of 620 or less.


So, lenders are loosening down payment requirements a bit, but not so much on the the credit standards. There is plenty of money to be loaned IFF borrowers can meet the income and asset tests.


If I include home prices as an asset, you can see that the CoreLogic Home Price Index is still below December 2007 levels despite the dramatic intervention of The Federal Reserve to stimulate mortgage demand by keeping rates low. {This strategy only works if wages and household increase rise again.}


So, there you have. Banks can lower down payment standards, but unless the number of qualified borrowers increases in a serious way, the residential mortgage market could wander in the origination desert longer than Moses.


A History of Bubbles and Financial Crises (And A Few More!)

The Economist had an interesting article recently entitled “The slumps that shaped modern finance.” The list includes bubbles and crises going back to 1720.





Goldman has a nice bubble chart that adds a few that Fortune missed, such as the 1621 “Tipper and See-Saw Bubble” and the infamous 1637 “Tulip Bulb Bubble.”


Both Fortune and Goldman left out the Russian Credit Crisis in 1998, probably because markets rebounded swiftly from the crisis. But it did prompt swift action from The Federal Reserve (that obviously thought it was a crisis). But it was nothing compared to what The Fed did to combat the collapse of the bubble and the 2001 recession.


Notice that many asset bubbles and financial crises occurred prior to the creation of The Federal Reserve System in 1913, following the Knickerbocker Crisis. But there have been some real disastrous bubbles and financial crises since the formation of The Federal Reserve as well.
The Economist lists the “Subprime Crisis” while Goldman calls it “Real Estate Bubbles.”


Which is it? It was a prolonged expansion of bank credit correlated with rising real median household income that resulted in a housing bubble. Then it blew up.


Now the US is slip sliding away since the 2nd peak of real median household income and bank credit expansion in 2007.


Bubbles, financial crises and bank runs are very destructive.


Carville Advises Democrats To Not Mention “Recovery” — Because There Isn’t One!

Democrat strategist James Carville’s advice to Democrats for the midterm elections: “Don’t say recovery!”

Here is why.

Let’s look at how fast the labor market and economy recovers from a recession. I plot the beginning of the recession (NBER) as the starting point.


Since The Great Recession began in December 2007 (a year before President GW Bush left office), jobs added under President Obama watch are NEGATIVE 422,000. In other words, the U.S. economy is still down 422,000 nonfarm payroll jobs from the beginning of the Great Recession.

To be fair, there was a destructive housing and credit bubble coupled with a recession before President Obama was elected (the recession only last 6 months after he took office).

Here is a more informative chart showing what has happened in the USA since the beginning of The Great Recession in December 2007. There is NO economic recovery.


Here is a chart since December 2007 of the NON-recovery. I would hardly say this is a compelling argument for the Obama/Democrat team for improving the lives of Americans, at least the lower- and middle-classes.


Another reason why Carville may be recommending not to say “recovery” is the GINI ratio of income inequality. The GINI Ratio keeps rising after the beginning of each recession (with the exception of GW Bush).


I think Carville’s advice to Democrats is a good one, because THERE IS NO ECONOMIC RECOVERY, especially in mortgage purchase applications.


Except for investors, like Lloyd Blankfein and Warren Buffet.



warren buffett lloyd blankfein (1)

Oh Canada! Housing Bubble Larger Than USA, Spain or UK (Spain Most Affordable, Canada Least Affordable)

Oh Canada!! You have a housing bubble that is larger that the one in the USA, UK and Spain.


Notice that the USA housing bubble struck first, then Spain, UK and Canada followed (as if investors in US housing decided to pull out and invest elsewhere). The major difference between the four countries is that the USA and Spain are not back to their bubble peaks, while the UK has exceeded its peak. But Canada has taken off like a scaled rabbit.

The takeaway from this data is that Spain is the most affordable of the four countries and Canada the most UNaffordable.

Oh Canada!


Japan’s Consumer Confidence Crashes, House Prices Continue To Deflate

The U.S. financial markets are closed today for Good Friday. So it is time to focus on one of my favorite countries to visit: Japan.

The news coming out of Japan is not good. Consumer confidence fell by the largest amount since the Tsunami struck in March 2011.


Japan’s industrial production also fell 2.3% last week, the biggest drop since the Tsunami.


Japan is still experiencing deflation in home prices are their housing bubble peak in 1991. For comparison, U.S. home prices peaked in 2006, but have been rising again since 2012.


Japan’s loans secured by real estate peaked in 1992 while U.S. mortgages outstanding peaked in December 2008.


Speaking of debt, Japan’s debt to GDP stands a whopping 226%.


I have great empathy for the Japanese. They had to suffer through that devastating Tsunami, Abenomics and then Keanu Reeves’ 47 Ronin film.


U.S. Treasury 10Y Yield Up 9.3 BPS To End Week, Freddie 30Y Commitment Rate Declines

The week ended on a sour note for mortgage lenders and borrowers. The 10 year U.S. Treasury rose 9.3 basis points on Friday. However, the Freddie Mac 30 year commitment rate kept falling early April.


Bankrate’s 30 year fixed-rate average rose as well, but Freddie Mac’s 30 year fixed-rate commitment rate fell.


The 7 year yield actually rose over 10 basis points today.


I have the sneaking suspicion that the Freddie Commitment rate will rise next week.

“X” Marks The Spot: Homeownership Bubble Deflates To 1995 Levels

I just talked to a Wall Street Journal reporter about the decline in single-family mortgage originations and the rise of commercial property (and multifamily) lending. In a nutshell, I told him that the residential mortgage market has declined along with real incomes, the employment to population ratio and the result is a declining homeownership rate. Thus, increasing lending on multifamily housing.

At a minimum, the big push for homeownership that started under President Bill Clinton has come completely unraveled, when the homeownership rate is back where it started in 2005.


This chart reflects the decline in mortgage originations among the major U.S. banks such as Wells Fargo, Bank of America, JPMorganChase and Citi.


Here is a chart as to WHY mortgage originations are crashing downwards.


But a closer look reveals the fundamental transformation of the labor market where real income has fallen (along with labor force participation and M2 Money Velocity) while personal wealth transfers (e..g. SNAP [foodstamps], Disability, and Medicare) have grown. X marks the spot!


And more part-time jobs which usually translates to more renting.


Unlike in Indiana Jones and The Last Crusade, “X” really does mark the spot.


Mr. Part-time: Jobless Claims Fall To 2006 Levels, But Wage Growth 46% Below 2007 Levels

According to the U.S. Department of Labor, Initial Jobless Claims fell to their lowest level since 2006!


The bad news? Real median household income and wage income growth are below where they were in 2006 and 2007. :In fact, wage growth is down 46% since June 2007 while real median household income is down 8.3% since 2007.


So, for those of you wondering why mortgage originations are so low, take a look at “the recovery.” Part-time jobs and lower income has replaced full-time jobs and higher income.

What’s his name? Mr. Part-time.


Housing Starts Rise … To 1991 Levels (Industrial Production Beats Expectations)

First, the less-than-good news — housing starts rose by 2.8% in March, but far below the expectations of 7.0% by industry analysts.


Housing starts rose to … 1991 levels and every other trough in housing starts since 1959.


Yet homebuilding company stocks spiked on the announcement.


Now for the good news! On the macro front, industrial production rose 0.7%, more than the expectation of 0.5%. And capacity utilization rose to 78.7%, the highest level since the end of The Great Recession. Still, it is short of the 80% barrier that was seen during the Clinton and GW Bush years.


Although the US economy is still below 80% capacity utilization, we are seeing progress. Housing starts have been rising since they hit bottom in April 2009.